Bid for PGW hurts earnings for UIL Holdings

UIL Holdings Corp. spent an additional $5 million on its quest to acquire Philadelphia Gas Works, depressing the Connecticut company's second-quarter earnings.

UIL has spent $11.9 million so far on its $1.86 billion acquisition of PGW, which Mayor Nutter announced March 3, but which has stalled while Philadelphia City Council awaits of a consultant's report on the sale.

UIL president James Torgerson told investment analysts Thursday that the company continued to pursue the sale despite a provision that allowed it to pull out after July 15 if Council had not approved the sale.

"We did decide to continue our efforts to pursue this acquisition, and really, we want to become a new business partner in Philadelphia," he said.

"We're enthused about the opportunity there. And we still believe it's going to be a great strategic asset for us, assuming we can get the approvals."

The deal also requires approval by the Pennsylvania Public Utility Commission, although UIL and the Nutter administration have not yet filed a PUC application after Council members objected that Nutter was trying to rush the sale through.

"We've just got to work with City Council to make sure it's not being perceived as precluding any of their action, their ability to act," said Torgerson. "We've just got to work with them on the timing."

The PUC filing is critical because the state agency will require about eight months to study the sale and to conduct hearings to address objections from opponents, including low-income advocates, PGW's union, and anti-privatization activists. UIL hopes to close the deal by the end of March.

UIL, which operates three New England gas utilities and the United Illuminating electric company in New Haven, won a protracted private auction process to buy PGW, the nation's largest municipal gas utility.

UIL's acquisition expenses include the costs for due diligence, legal advisers, and financial consultants. Most of the expense is the cost of maintaining a $1.9 billion letter of credit that supports the company's bid, said Michael A. West Jr., UIL's spokesman.

The acquisition costs amounted to 21 cents per share for the first half of this year, reducing UIL's earnings nearly 16 percent, from $76.7 million to $64.8 million.

On a day when most utility stocks gained value, UIL's shares Thursday closed down 3 cents at $34.72 on the New York Stock Exchange.